UK property industry hits out at call for mortgages to be restricted

UK Business Secretary Vince Cable has stepped in the housing price debate by calling for action to be taken to stop a property boom which he claims is getting out of control in parts of the UK.

He said he was appalled that some banks are lending five times a mortgage applicant's income. He believes that a more ‘stable’ level would be up to 3.5 times salary, adding that the desires of potential home owners should be balanced against the stability of the economy.

His interventions comes hours before Chancellor George Osborne is expected to mention how the Bank of England could tackle any financial instability caused by house price rises.

But many in the property industry are surprised at comments. Just last week the latest index from the Nationwide Building Society said the signs point to activity in the UK housing market starting to moderate.

And today the latest report from the Royal Institution of Chartered Surveyors (RICS) said that the momentum was starting to slow in the housing market, as a lack of supply, higher prices, and more prudent lending measures are making buyers and sellers more cautious.

Many experts point to the fact that most of the house price growth has been in London where overseas buyers have been fuelling the market. But even that is slowing with the latest analysis reports pointing out that price growth in the city is slowing and there are predictions of 0% growth in the near term.

When pressed Cable admitted that the boom in prices is confined to the south east of England but he still said that banks are throwing ‘petrol on the fire’ by giving home loans that ran at high multiples of applicants' incomes.

Paul Smith, chief executive officer of haart estate agent, believes such a move would strangle the recovery in the property market. ‘It’s not clear why Vince Cable wants to kill off first time buyers, vastly reducing their ability to get a mortgage and strangling the current housing market recovery,’ he said.

‘Indeed his proposals would also hold current home owners hostage in their own homes, as they will not meet the lending criteria when they chose to move on and need a bigger mortgage,’ he explained.

He added that such a proposal would also affect house builders as there would be no encouragement to build homes if buyers can’t get mortgages.

‘The whole point of a mortgage is to help those who aren’t lucky enough to make a cash purchase and that’s the majority of the UK’s aspiring home owners which ever rung they are on,’ said Smith.

The head of research at property firm Hamptons International, Johnny Morris, said it was too early to call for caps on income multiples. ‘First we need to see the impact of stricter affordability rules recently introduced through the Mortgage Market Review. Lenders are already aware of the risks associated with deteriorating affordability and the increased vulnerability of highly geared borrowers,’ he pointed out.

‘The numbers of mortgage applications failing lenders tests has been increasing according to the Bank of England's credit conditions survey, and looking ahead there is a clear expectation that affordability terms and conditions will bite much harder,’ he added.

According to Simon Crone, vice president for mortgage insurance at Genworth, explained that there is still a gulf between April's 17% average first time buyer deposit and the 5% to 10% deposits that were the norm throughout the 1980s, 1990s and early 2000s.

‘There is clearly room for some fine tuning of Help to Buy as the £600,000 ceiling on purchases is far higher than is needed to support aspiring first time buyers. But today's Council of Mortgage Lenders figures suggest that any moves to significantly limit the scheme may have dire consequences and add to the difficulties that have blighted this part of the market since the recession. It remains a long term issue that demands a long term solution from government in partnership with the private sector,’ he added.